Dr. Kouros Sediqi, Senior Economist

Protecting independence, security and national survival of the country hinges on economic and social development and deepening of the industrialization process in Iran. Under present conditions, the Iranian society consists of two traditional and semi-industrial parts, which in the absence of the implementation of strategic and cohesive plans for industrialization of the Iranian society (as delineated by the outlook plan for industrial development of Iran as well as large-scale policies of the Fourth Economic Development Plan) will be faced with various crises, instability and imbalance that will threaten our national security. Underdevelopment during the past quarter century along with unhindered population growth, globalization of information and excessive expectations inside the country have confronted our society with serious challenges for fighting widespread unemployment, social maladies, as well as material and cultural poverty. Emphasis on a state-run economic system dependent on petrodollars, marginalizing the private sector in wealth generation activities and pushing it toward brokerage activities adding to inflation, wasting time over scholastic discussions as well as right and left-wing disputes on such issues as liberty or control, growth or social justice; dominance of simplistic views about development including preference of agriculture over industry or vice versa, opposition to development of the private sector and establishment of market mechanism and industrial capitalism in addition to willingness for small-scale activities and so on, have barred the Iranian economy from attaining sustainable and stable development through investment, creating new capacities and renovation of existing infrastructures.

In this way, due to such inclinations and performances, Iranian economy has lost many historical opportunities and since rival countries have taken advantage of substitute options, those opportunities have sometime turned into new challenges facing realization of national and regional interests of our country. Undoubtedly, continuation of the said trends into coming years will deprive our country from many remaining opportunities and may turn them into new intimidations marginalizing Iran in the process of global development.

During past two decades, the Iranian economy has adopted mainly closed approaches and functions based on government’s ownership and control and has failed to achieve sustainable development and continued industrial growth commensurate to its potentialities.

The question is why Iran has not been able to achieve suitable industrial and economic development proportionate to its merits and national advantages over this relatively long period of time and has not been able to take good advantage of opportunities that emerged during the last decade of the 20th century to turn from a country dependent on natural recourses and trade of raw materials or semi-industrial products to an advanced country capable of a wide spectrum of production, industrial and commercial activities despite enjoying all kinds of natural and material facilities, mineral resources, young manpower, educated workforce, superb geographical situation and varied climate? During the said period, such countries as Malaysia, South Korea, China, and Turkey in Asia in addition to Brazil, Chile, Argentina, Mexico… in the Americas (with a large population) have been able through adopting suitable developmental strategies to rise from a similar situation to Iran with generally low per capita incomes and achieve large economic growth figures so as to be gradually accepted among developed industrial nations.

In response to the said question one can refer to developments during the said period in Iran including revolutionary challenges, political and managerial developments, a long imposed war and consequent destruction, fluctuations in oil price on which the Iranian economy is heavily dependent, foreign economic sanctions and so on. However, in addition to all the above-mentioned developments the following three factors should not be overlooked when analyzing limited performance of the Iranian economy:

1) Dominance of beliefs, viewpoints and thoughts against progress and development laws;

2) Absence of a strategic plan and comprehensive economic and industrial development guidelines;

3) Executive performances and adoption of changing and contradictory policies and approaches; temporary decision-making; selection of sectoral solutions instead of large-scale planning for negotiating developmental bottlenecks; lack of scientific thought in economic management; adopting trial and error methods when making short- and medium-term policies without attention to their social consequences and costs.

Also, attitudes and viewpoints governing development process have affected policymaking, performances as well as economic trends in Iran. In the absence of a long-term strategic plan for economic and industrial development of the country the dominant factor influencing behaviors and economic managerial performance of the country was ideas, viewpoints and expectations whose realization in most instances has been proven to be impossible or unsuccessful according to global economic development experiences after the Industrial Revolution up to the present time. Those viewpoints have never led to sustainable development and due to lack of a supporting scientific and economic basis, have given birth to opposite results to primary goals. Among major viewpoints and models brought up over the past quarter century with regard to management of economic affairs of Iran, one can refer to the following instances:

• Taking the concept of government’s sovereignty to be synonymous with its size;

• Considering increased state control as prerequisite for settling economic problems of the country and supplying people’s needs;

• Negative attitude toward development of private sector and industrial capitalism;

• Taking market to mean an economic ideology and not a tool for allocation of resources, development and progress;

• Accepting the theory which says ‘Small is Beautiful’ along with a negative attitude toward big industrial and commercial units without due attention to the necessity of organic relation between small- and medium-sized industrial clusters and groups with large industrial units as major demanding foci;

• Focusing on agriculture sector in economic development of the country and ignoring expansion and deepening of industrialization process;

• Encouraging living in villages and emphasizing stabilization of rural population regardless of technological developments;

• Preferring distribution of income and social justice without boosting production and economic growth and promoting efficiency and productivity as main factors for uplifting standard of living and providing social welfare and justice;

• Dominance of internalized viewpoints based on a closed economic system and self-sufficiency in such important fields as science and technology, industry and agriculture under conditions when the Iranian economy is forced to engage in an asymmetrical interaction with global economy through oil;

• Negative attitudes toward economic liberalization and believing in expansion of government’s control in economic fields as well as using obligatory methods for managing economic affairs such as rationing, enforcing quantitative limitations, fixing prices, regulations governing labor market, obligatory bank facilities and credits… without attention to their consequences in disturbing markets and economic functions.

The result of such thoughts and viewpoints along with constant attention to effects instead of finding causes as well as solutions based on comprehensive thinking, inattention to specialty, experience and scientific merits of directors in specific fields especially economy, managing domestic economy along dominant trade lines, and most importantly, inattention to importance and role of investment as the most important factor for economic growth, job creation and elimination of joblessness have barred the Iranian economy from following due course of reforms as projected by economic and social development plans to create necessary grounds for the country to join newly industrialized nations and achieve goals and objectives of a modern society.

The global society is moving in such a way that a powerful convergence in terms of developmental viewpoints and approaches as well as economic strategies and policies is emerging, which does not allow for choosing out of many opportunities and selecting out of various development models such as Russian, Chinese, Cuban, Vietnamese, Indian and Algerian models or testing the first, second, third… ways. At the moment, driving forces behind globalization, especially technological developments in the fields of information and communication, on the one side, and liberalization of trade, investment and financial regimes in most countries, on the other side, have led to domination of a single model and uniform regulations on national development process of all countries and have forced national sovereigns to inevitably follow suit with unified ideas or do so in near future despite difference in details of domestic policymaking and attention to growth phases or national exigencies.

However, in reality, crude oil exports still dominate total goods and foreign trade export of the country. It will suffice to note that during the past two decades more than 80% of the country’s foreign exchange revenues and 54% of general budgetary revenues of the government have been supplied through crude oil exports and, at present, added value of the oil sector accounts for about an equal share to industries and mines sector in the gross domestic product of Iran.

A controversial issue regarding advancement of oil-rich countries is that oil resources and revenues of these countries (which are among advantages and God-bestowed opportunities of those countries) have mainly worked to slow down their sustainable development and diversification of economic activities instead of clearing the way for sustainable development. Experiences of developing oil-rich countries over the past three decades attest to this. As an extension of this theory, they also say that existence of a flexible raw material exporting economic sector is more harmful than useful from a long-term economic development viewpoint (abundance paradox). Influx of abundant foreign exchange resources to these countries through export of raw materials and related products has increased the real value of national currency while decreasing competitiveness and export growth capacities in other national economic sectors, especially in the industrial sector, resulting in reallocation of resources between commercial and noncommercial sectors (Dutch Disease).

In addition, the delusion that resources will be never depleted directs strategy of economic corporations in such a way that instead of focusing on development of internal facilities and capacities, technical innovations, marketing, qualitative growth of products…, economic executives like their peers in the public sector move toward adoption of policies to get a share from foreign exchange revenues and, as a result, economic recession dominates the society. At the same time, the trade sector grows out of proportion to production sector due to ballooning foreign exchange revenues resulting from export of raw materials and rapidly gaining service activities, pushing national production structure toward nonproductive activities. In this process, rent-seeking groups emerge, which along with disturbed distribution of revenues and formation of polar demands not proportionate to growth stage of the national economy, make demand structure a new barrier to production and supply. As a result, one-way trade interaction trend and the vicious circle of reduced productivity and expansion of imports is exacerbated.

Existence of exogenous revenues in the process of exporting primary goods and raw materials will increase vulnerability of the national economy with resultant fluctuations and cycles of prosperity and recession preventing stabilization of conditions and establishment of fixed regulations governing economic activities. Such unstable conditions will prevent emergence of a suitable atmosphere for domestic and foreign investments. From the viewpoint of industrial policies, oil-rich developing countries have generally taken to import replacement strategy for realizing their industrial development goals. Adoption of this strategy in the early stages of economic growth process before reaching the stage of economic spurt is necessary both due to existence of an undeveloped market, and because of weakness of domestic technical and entrepreneurship capacities, especially in the private sector.

In this stage, widespread presence of the government in economic activities and establishment of physical and other infrastructures as a main factor for facilitating and accelerating the development process are to some extent inevitable. However, continuation of such policy and intensity of protective methods in view of special conditions of those countries will practically bar moving toward an internalized and export-oriented economy by giving rise to rent-seeking groups. Furthermore, under an oil-dependent economic system, financial independence of the government, which has no need for the mobilization of domestic resources to supply its budget along with remarkable share and role of budget in economy and economic power resulting from it usually create obstacles to political and social growth and dampen incentives for moving toward decentralization and encouragement of political and economic participation. This will prevent establishment of necessary correcting mechanism inside the political and economic system, especially responsiveness mechanism, which are among main conditions for correcting affairs and improvement of political organization. Therefore, incorrect trends, tendencies and approaches persist under such economic systems and, generally speaking, oil revenues resulting from crude exports only act as a guise to postpone emergence of crisis. However, incorrect trends and tendencies finally exacerbate crisis and their repetition will substitute crisis management for strategic management as an institutionalized affair with statesmen and policymakers, which due to absence of long-term plans will lead to untoward social and economic outcomes.

Integration into a globalized economic system through oil will naturally affect international political and economic relations and behavior of those companies. As a result, dependence on oil revenues and inevitable interaction with global economic system will prevent those countries from normally interacting in their foreign relations. Such presumptions can explain economic performances of oil-rich developing countries over the past three decades, but they are not valuable from the standpoint of programming and policymaking because they connect the process of development to the external factor of oil. Undoubtedly, oil as a source of foreign exchange revenues will offer oil-rich countries with more options and can play a crucial role in industrial development of those countries provided that suitable policies are adopted for management of oil revenues and industrial development. Experimental evidence in this field, especially in performance of advanced industrial nations availing of oil revenues has shown that existence of democratic institutions and mechanisms to respond, good investment grounds, relatively lower share of natural resources from domestic economies of those countries as well as absence of monopolies in the field of exploration and exploitation of oil resources are important factors affecting desirable management of oil revenues to facilitate industrial development of those countries. Preventing vulnerabilities resulting from external cycles of prosperity and recession and fluctuations in oil revenues and, in other words, treatment of Dutch Disease has only been possible through establishment of mechanisms to thwart the said fluctuations such as establishing an oil stabilization fund or correct management of resources, especially rigorous financial discipline.

In Iran, management of oil revenues in the absence of suitable political and economic institutions has been done in such a way that the country has not been able over a long period of time to achieve long-term industrial and commercial development commensurate with its potential capabilities and capacities. As a result, after about 100 years of reliance on petrodollars, national economy and oil sector are facing many bottlenecks resulting from underdevelopment including:

• Persistent reliance on natural resources and low-value comparative advantages and failure in converting those advantages into competitive advantages in the global market;

• Not achieving the goals of marketing, diversification of national economy, technological dynamism and continued unilateral and asymmetrical commercial interaction with the global economy while being vulnerable to impulses and damages resulting from externalized cycles of prosperity and recession in sale of raw materials (Dutch Disease);

• Loose attachment of oil sector to other links in production as well as economic and industrial activities is a major impediment to playing a pioneer role by the sector in deepening the process of industrialization of the national economy and technological developments, on the one side, and continued dependence of the oil sector on foreign science, technology, goods and services, on the other side.

• Lack of coordination between structural and organizational developments of the Iranian oil industry and scientific, technical and organizational developments in global oil industry as well as persistence of a monopolized, state-run structure has made the industry a money-earner for the government and not an efficient economic corporation similar to international oil majors.

• Existence of a bureaucratic, inefficient public sector and establishment of a government based on economic rents along with monopolistic relations characterized by expansion of distributive functions, underdevelopment in the field of mobilizing resources (including taxes) and, as a result, no need for economic and political partnerships;

• Establishment of influential and beneficiary groups (distribution cartels) within the framework of an economic system based on import replacement policy through a subsidized structure and persistence of closed, self-sufficient and uncompetitive economic approaches as a serious impediment to economic reforms and movement toward externalism in line with export-oriented economic liberalization and industrialization.

Such conditions, which prevent establishment of democratic institutions and responsive mechanisms, in addition to widespread governmental intervention in economic affairs, especially with regard to allocation of resources has brought to an impasse the process of competition as well as development of free market and the private sector.

It should be noted that existence of 130.7 billion barrels exploitable crude oil and gas liquids as well as 26,700 billion cubic meters of natural gas resources in the country (accounting for 11.4% of global oil reserves and 17% of the world’s gas resources) should not make our people and government believe that continuation of past methods and reliance on raw materials export could get them out of the ‘oil trap’ and help the Iranian economy become an industrial, dynamic, competitive, diversified, resilient and powerful economy. Under such conditions, development of domestic oil and gas sector over the upcoming years without providing needed grounds for industrial development and its requisites and in the absence of necessary reforms, especially establishment of infrastructures and making changes to remove limitations on development process (even if considered possible in an independent manner) could not help us get out of the vicious circle of an oil-dependent economy and do away with paradox of abundance in the national economy.

At the same time, in case of correct management and accurate formulation of development plans of the Islamic Republic of Iran up to 2025 and if the oil sector, which is a very important comparative advantage of our national economy, were adapted to axioms and principles of those plans, it could not only be a driving force behind sustainable development and diversification of economic and industrial activities, but also due to the nature of positive interaction of this sector with similar industries, markets and economies elsewhere in the world and because of accumulation of physical and human resources as well as technological capacities, it can play a pivotal role in long-term economic development of the country through widespread and symmetrical interaction with global economy, move toward competitiveness and establishment of a safe base for technological dynamism and, finally, pave the way for transition to knowledge economy, which is among the main objectives of the Fourth Economic Development Plan.

One of the main characteristics of modern relations is intertwining of growth, security and interests at national, regional and global levels. Countries that prove unable to get in line with new arrangements will be rapidly marginalized and risk their national security and interests. An example of this process is establishment of new regulations and arrangements in the field of international exchanges with regard to dealing in goods and services as well as regulations governing investment and production and intellectual property. Naturally, any country unable to get attuned to new global arrangements and modern paradigms of development will not be able to avail of widespread opportunities provided to all countries in global market. Taking part in international production and trade, especially over the past two decades in the context of global value networks and through various mechanisms including foreign direct investment, joint ventures, industrial coalitions and strategic pacts, purchasing license for technology or production and industrial contracts… has created favorable conditions for developing countries, in general, and for Iran, in particular, to find a suitable place in international system of division of labor which will not only ensure interests of those countries and promote their welfare status, but also lay suitable grounds for consolidation of their national security through tying their national, regional and international interests.

Studies carried out by international bodies and independent researchers on 94 countries indicate that during 1980s and 1990s, developing countries that took advantage of opportunities for attunement to economic and industrial globalization enjoyed an annual average economic growth rate of 3.5% and 5%, respectively, while countries failing to avail of those opportunities only registered annual average growth rates of about 0.8% and 1.4%, during the said two decades respectively.

Iran, in a long-term perspective for upcoming decades, will be offered excellent opportunities with respect to trade, transit, and position in suitable industrial production domains in the context of regional and international systems of division of labor because of its geographic situation which makes it a linking bridge between two continents of Asia and Europe. It should be noted that such opportunities and privileges will not be beneficial for a country like Iran until they are willingly used to good effect. Failure to take advantage of such opportunities in medium- and long-term outlooks will prove to be a serious challenge for the realization of national and regional interests because rival countries may take advantage of substitute options. The process of economic globalization and international interactions are characterized by: 1) expansion of markets for all countries and 2) intense competition for securing a foothold at the market and getting a share from trade, capital, technological and service transactions. In this situation, competition for progress and benefits resulting from agglomeration of economic and trade activities and its effect on attracting foreign capital sources and trade currents will inevitably introduce a new frame from the viewpoint of competition among countries for speeding up the process of political and economic reforms and adopting suitable institutional and political approaches in order to take advantage of opportunities and finding a good place in international production and trade domains. Establishment of democratic institutions, economic liberty, development of the private sector and creating necessary grounds for increasing competitiveness of national economies to increase their influence in international markets are major axes of the said reforms.

So far, only 30 countries have managed to achieve per capita incomes of about $15,000 or more (on the basis of purchasing power parity). According to rating indexes considered for economies at the international level, which are based on economic liberty and competitiveness, the said 30 countries top the global rating. This fact attests to existence of a direct relationship between growth and progress, on the one side, and adoption of institutional and political approaches that pave the way for investment and production as well as expansion of commodity and service trade under competitive conditions to bolster motives to work and respect for private ownership, on the other side.

During past two decades, the Iranian economy has adopted mainly closed approaches and functions based on government’s ownership and control and has failed to achieve sustainable development and continued industrial growth commensurate to its potentialities. During the said period, Iran has earned more than $500 billion through exporting oil and this has caused the country to engage in asymmetrical interaction with global economy. However, economic conditions have fared in such a way that the abovementioned earning and resultant facilities have not been used for productive investment, promotion of technology and deepening of the country’s industrialization process in an effective manner. Internalized approaches under a state-run, subsidized economic system, as well as vulnerable political and motivational structures not suitable for development of the private sector as the driving force behind growth and progress on top of damages resulting from eight years of imposed war are major factors for low economic growth in the country.

The necessity for getting out of the current situation, organizing economy through diversifying production and trade as well as reducing vulnerability resulting from asymmetrical economic structure as evidenced by progress experienced by developing countries through externalized approaches during recent decades, which enabled them to improve their status in global system of division of labor, has prompted Iran to consider four approaches as the main principles of the country’s progress in medium- and long-term outlooks and to include them in general policies of the Fourth Economic Development Plan (most of which transcends the limits of a purely development plan) as well as the Fourth Economic Development Plan bill (which was considerably turned and twisted during approval by the legislature). The said approaches include sustainable development and growth, active interaction with global economy, competitiveness as well as knowledge economy, which mark an effort by the Iranian government to adapt to modern development paradigms with an eye on special conditions and emerging challenges facing the country in the upcoming years.

The Iranian economy and society will be faced with two main challenges during the upcoming years. On the one hand, the economic growth of Iran should be organized in such a way as to be able to deal with qualitative and quantitative aspects of job creation over the coming years (including population growth, increased participation of women in labor market resulting in increased supply of workforce, and soaring unemployment resulting from higher productivity of manpower under a transitional economic system) and, on the other hand, growth speed should match active and potential capacities to restore and promote regional and international status of our country and help Iran turn into a regional economic power.

To meet these challenges, the rhythm and dynamism of Iran’s economic growth in the long run, including during the Fourth Economic Development Plan, has been designed in such a way as to:

• Reduce unemployment in medium- and long-term prospects and pave the way for increased productivity and participation of female workforce.

• Pave the way for reduced dependence on oil and emergence of various types of production to ease symmetrical trade ties with the outside world through development and deepening of industrialization process of the country.

• Clear the way for restoration and promotion of Iran’s status at regional and international levels by taking advantage of all active and potential capacities of the country and accelerating upliftment of national production.

• Create a sustainable, non-inflationary and internal growth trend by changing share of accumulation and productivity of all factors as the main sources of development through development of manpower, promotion of investment quality, expansion of production capacities and transfer of technical know-how.